Under or overapplied costs for Arts & Co.

Arts & Co. applies manufacturing overhead to jobs based on machine hours used. At the beginning of the year, the company estimated that overhead costs would total $86,000 for the year, and that the machine would run for 4,000 hours during the year.

1. Determine the pre-determined overhead rate for the year.

2. One job that ran during the month of March used 120 machine hours. The job also incurred materials costs of $750 and direct labor cost of $300 (20 hours at a labor rate of $15 per hour). The job consisted of 120 units. Determine the total manufacturing cost for the job, and the total cost per unit for items produced in this job.

3. A second job that ran during the month used 180 machine hours, incurred $980 of direct materials cost, and direct labor cost of $540 (36 hours at $15 per labor hour). The job consisted of 175 units. Determine the total manufacturing cost for the job, and the total cost per unit for items produced in this job.

4. Assume the jobs described in parts 2 and 3 were the only jobs worked on during the entire month of March. (The overhead was applied to these 2 jobs is the only applied overhead for the month.) Actual overhead costs for the month totaled $8,000. Determine the amount of under- or over-applied overhead for the month AND label it as over- or under-applied.

Solution Preview

Arts & Co.
Arts & Co. applies manufacturing overhead to jobs based on machine hours used. At the beginning of the year, the company estimated that overhead costs would total $86,000 for the year, and that the machine would run for 4,000 hours during the year.

2. One job that ran during the month of March used 120 machine hours. The job also incurred materials costs of $750 and direct labor cost of $300 (20 hours at a labor rate of $15 per hour). The job consisted of 120 units. Determine the total manufacturing cost for the job, and the ...